Tuesday, September 21, 2010

"Banking on Bernie: Street Now Trading Claims Against Madoff"

From Fox Business News:

Leave it to Wall Street to find a way to make money from the misery of investors ripped off by Ponzi swindler Bernie Madoff.

A number of big firms, including Deutsche Bank (DB: 61.65 ,+0.29 ,+0.47%), are trading the legal “claims” that ripped-off investors have against Madoff, offering pennies on the dollar for them and betting they can flip the claim later at a higher price, FOX Business Network has learned.

Trading claims – or what an investor says he or she is owed-- against bankrupt corporate entities is nothing new. Investors who worry that drawn out bankruptcy proceedings will eat into the value of what they believe they are due often sell their claim to a broker at a far lower price. The broker buying the claim is betting that he can ultimately sell it for a higher price down the road.

But what makes the Madoff situation unique is that most claim trades involve corporate entities, such as bankrupt companies. In the case of Madoff, the trading involves what investors in the Madoff investment fund say they are owed. Some investors lost their life savings in the Madoff fraud....MORE